Last Updated:April 24 @ 07:37 am

Guess who owes us a trillion bucks!

By Bobby Eberle

America keeps spending and spending and spending. The country has run up a massive amount of debt... most of it under the watch of President Barack Obama. But what we hear over and over again is that much of this debt has been backed by China.... that they exert power over us, because we owe them so much money. Think again! In reality, it is China that owes... and it owes America close to $1 trillion.

As pointed out by Richard Parker in an article on the McClatchy-Tribune, China sits in default of bonds purchased by Americans as well as governments around world.

The Chinese government doesn't like to talk about it and the U.S. government doesn't want to raise it. But decades ago, Beijing defaulted on debt owed to Americans, as well as investors and governments around the world. In one case, it was paid. In the rest it was not. More than 20,000 American investors own this debt. The U.S. government may also own Chinese war debt, unpaid since World War II.

With the simple stroke of an executive proclamation, President Barack Obama can begin the process of addressing this issue. A 1930s-era law has established a quasi-public agency within the Securities and Exchange Commission, known as the Corporation of Foreign Securities Holders, which can arbitrate this dispute, much as a predecessor agency did for decades. China can both afford and benefit from this solution; it will afford goodwill at a time when relations between the world's two superpowers are strained.

The story begins nearly 100 years ago, in 1913, when the government of China began issuing bonds to foreign investors and governments for infrastructure work to modernize the country. As the country fell into civil war in 1927, paying these debts became increasingly difficult and the government fell into default. Even so, in April 1938, the Nationalist government of China began to issue U.S.-dollar denominated bonds to finance the war against Japan's brutal invasion.

Parker adds that throughout the 1940s, the U.S. government continued to help finance China's government, but the with the rise of the People's Republic of China, all bets are off as far as their desire to repay this debt. Except for one. Great Britain.

As pointed by Peter Huessy in a Fox News story:

In 1987, threatened with being kept out of the British financial markets, China acknowledged the debt it owed from the sale of these exact same bonds to British investors. As part of the Great Britain-PRC agreement on Hong Kong, the PRC agreed to pay its debt to British citizens who owned these same bonds. By paying the British bondholders, but no other bond owners worldwide, including U.S. bondholders, China "selectively defaulted" on these bonds.

So why is Great Britain getting repaid, but the U.S. isn't?

Richard Parker points out that if Barack Obama took action, the dominoes would begin to fall:

All that has to happen is that President Obama issue a proclamation to stand up the corporation, and a staff, at the SEC. The bondholders would bring their bonds in for examination and verification of the certificates and serial numbers. Then the corporation could get about settling the issue through payment, reissue of bonds, restructuring or even settling the debt.

The problem isn't just with our government. The problem is that everyone seems to be turning a blind eye toward China and assuming they are more powerful then they are, and not holding them accountable for their actions. Standard and Poor's refuse to degrade China's credit rating despite the massive default on their debt obligations. America's Security and Exchange Commission (SEC) has failed to act as well.

From Peter Huessy:

Under the rules, they are granted a license by the Security and Exchange Commission (SEC) of the United States to be a nationally recognized statistical rating organization (NRSRO), a charter to assess the risk of investing in sovereign and corporate debt, stocks, or bonds. The "selective default" of the PRC must be acknowledged,in that the metrics used by the NRSRO organizations that they themselves have promised to follow as part of their license agreement includes just such a requirement.

Now if China was found in selective default, this would cause the PRC to have to pay considerably more to finance its debt than it does now. Billions more.

But because everyone thinks the PRC is the strong economic horse, S&P fudges this issue big time and does a disservice to the American people. It is as if you could pay a credit agency to write-up your credit score according to your own rules! Well... wouldn't that be nice?

All America has to do is get the ball rolling. The British government spoke up, and the debt was repaid. What is America afraid of? The credit rating of China is not accurate. They are in default. Adjusting that rating would help America. Paying their debt would help America. And holding them accountable shows them that if they want to sit at the grown-ups table, they need to act like grown-ups.

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10 Comments

  1. bna42Comment by bna42
    June 6, 2012 @ 2:13 pm

    Countries around the world owe the U.S. since WW II, but they have all defaulted. I think the loans should be called in and all foreign aid be eliminated until we get our economy in order.

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    • justamomComment by justamom
      June 6, 2012 @ 2:23 pm

      Seriously. What is wrong with our government that we are supposed to be the economic and military clean-up crew for every problem in every country on the globe, yet we not only get no thanks or repayment of debt, but we simultaneously get spit in the face? We are like demented children who like the “kick me” sign on our backs!

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    • Dingbat36Comment by Dingbat36
      June 6, 2012 @ 5:01 pm

      Not all debtor countries have defaulted. The UK repaid their World War 2 in full by 2006 and I believe the French paid the debt back in full too. Some of the French debt was forgiven by the US and United Nations under the Marshall plan. Some of the debt was forgiven because the allied forces did do some damage in France. There were several other countries which also paid back their debt, two of which were Turkey and India. I know there are a couple others but not able to find further documentation.

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  2. vComment by v
    June 6, 2012 @ 2:29 pm

    We do need to call in ALL FOREIGN DEBT TO THE US, and Cancel ALL FOREIGN AID, WORLD BANK FUNDING, AND UN FUNDING! we are giving RICH NATIONS US TAX PAYER DOLLARS!
    These Countries are not poor they just have been allowed to keep draining the US TAXPAYER!
    When will we get people in the Elected Positions that will stop voting for this ****!
    When will the rest of Y’ALL STOP Giving to Foreign Charities and Organizations!
    Y’ALL are a large part of the problem!

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  3. roosterComment by rooster
    June 6, 2012 @ 3:41 pm

    Really? Is now the right time to do this? I would not tell Obama. Let’s just say that China pays us a trillion dollars. Obama will just give to Muchelle so she can take another vacation and go on another shopping spree. The last thing we need is for Obama to get his filthy little hands on another cent of our money. He’s already stolen billions.

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  4. earthbornComment by earthborn
    June 6, 2012 @ 4:51 pm

    WOW Rooster. I agree with you, but that is pretty harsh. Really can’t see China or any other country coughing up any money before re-election. Let’s just make sure he’s not there next term. ? what does the United States have that we can hold over the Chicom’s head. I don’t think war debt will get it done.

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  5. gimmesometruthComment by gimmesometruth
    June 6, 2012 @ 5:22 pm

    The US has been limp-wristed when it comes to enforcing international patents and property rights. The Chinese are the world’s largest producer and exporter of knock-off contraband. We do not properly inspect the appropriate number of containers coming in from Asian ports. I would redirect at least 1/2 the TSA agents to our ports since they are experts at going through personal property……..sometimes it inadvertently sticks to their fingers.

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  6. harrymaxipoComment by harrymaxipo
    June 7, 2012 @ 11:54 pm

    Many bonds have been purchased using taxpayer money. The government has not only ripped off the bondholders but every American citizen since they used your tax dollars to purchase bonds. The Iron Lady, Margaret Thatcher made China pay their debt to British people, she had guts. Obama has hamstrings of clay, weak wrists and just allows China to dictate policies. China must play by the same rules as other countries. Do you realize that the American government pays monthly interest to China for the treasury bills that they hold of ours yet allows China to default on the bonds that helped build their country! This must stop! Go American Bondholders Foundation, go get em. You can run but you can’t hide!

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  7. grandmaof3Comment by grandmaof3
    June 8, 2012 @ 5:36 am

    All Americans need to be outraged over how much money the People’s Republic of China owes the American people. Instead of raising our debt ceiling (AGAIN) another trillion dollars, we should hold China (and others) accountable for their debts to us and make them pay their bill! Stop the double set of rules and standards that China has and stop our government from continuing to kick the can down the road at the expense and demise of the American people and our country. Wake up America! Demand justice!

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  8. gimmesometruthComment by gimmesometruth
    June 11, 2012 @ 9:35 pm

    The American taxpayer had their pockets picked to keep GM afloat thanks to Obummer. GM turns around and partners with China to hand over their R&D division and most of their future investments. We are being laughed at by the world and overtaken. China is acquiring our sensitive data through legal purchases much like our military is becoming neutered by foreign suppliers.

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